Brian Cowen, the Prime Minister, dismissing the term 'bailout' as pejorative, said: "There has been no question of the government ... [being] in a negotiation for a bail-out."

Instead Ireland committed itself to working with a European Union-IMF mission on urgent steps to help its stricken banking sector.

Financial markets appeared unimpressed by Dublin's decision to reject assistance, with the premium investors charge for holding Irish 10-year bonds rather than German Bunds rising to a near-record 595 basis points.

The cost of insuring against default by Ireland jumped, with five-year credit default swaps widening by 25 basis points on the day to 545 bps, while those for Spain and Portugal also rose - a sign of the contagion that EU policymakers fear most.

George Osborne, the British Chancellor, has pledged British support of up to £7bn for an EU bail-out of Ireland and its banking sector.

The Chancellor arrived in Brussels for a meeting of EU finance ministers aware that exposure of British financial institutions to Irish banks is £140bn.

“Ireland is our closest neighbour. And it's in Britain's national interest that the Irish economy is successful and we have a stable banking system,” he said. “Britain stands ready to support Ireland.”

Britain is not part of the 16 member eurozone but is a member of a £51bn “European Financial Stabilisation Mechanism” that will be used to aid Ireland.

The European Commission said a potential British role was “under discussion” as EU and IMF officials headed to Dublin today to carry out “intensified, short and focused” preparations for a bailout of Ireland.

Officials said that multi-billion cash injection could be ready within “five to eight days” of a eurozone decision to step into save Irish banks.

The intervention is climb down for Ireland after other eurozone countries pushed it into accepting an intervention against its wishes.

Brian Lenihan, Irish finance minister, insisted that a bail-out was not inevitable but admitted that Irish sovereignty was compromised by its membership of the euro. “When you borrow, you lose a little bit of your sovereignty, no matter who you borrow from,” he said.

“Sovereignty, in my view in a European context, is shared. We have a duty to the eurozone as our currency and it is Ireland’s currency as much as it is Germany’s or France’s. We have a duty to sustain the stability of the eurozone. Ireland is the zone of attack in the eurozone.”

Mr Lenihan said talks with the IMF-EU team would begin on Thursday.

He set out his stall ahead of the talks by dismissing suggestions that Ireland should raise its ultra-low 12.5pc corporation tax rate to help cut its debt. "Of course our corporate tax rate is safe," he said.

However, higher-tax countries, including Britain, have long seen the Irish rate as a form of unfair competition and many commentators believe the raising the rate will be a conditions attached to any rescue package - be it for the country or just the banks.

The European Central Bank and other euro currency members have been concerned that that Irish banks have been increasingly dependent on support and putting Ireland under intense pressure to give to controversial aid conditions that will reduce the country economic independence.

No details of a rescue emerged at meeting of eurozone ministers last night but it is likely that a bail-out will be choreographed with an Irish four year spending plan and austerity programme which could be as early as next week.

Jean-Claude Juncker, Luxembourg’s Prime Minister and chairman of the eurogroup, said he expected a decision on the bail-out “within the coming days”.

“Market conditions have not normalised and pressures remain, giving rise to concerns that further reforms and stabilisation measures may be appropriate,” he said.

EU economics commissioner Olli Rehn said the talks would centre in the main on a package to stabilise Ireland’s banks and said it would be available if the Government choose to seek aid.

Olli Rehn, the European economic and monetary affairs commissioner, said the EU-IMF teams sent into Ireland would have an “accent on restructuring its banking sector”.

“This can be regarded as an intensification of preparations for a potential programme in case it is requested and deemed necessary,” he said. “This is a time for cool heads and clear determination to take the necessary decisions to that effect both at the EU level and in every member state.”

The Irish government has insisted that it can afford to repay its record debts, despite having an annual deficit equivalent to almost a third of the size of its economy.